by Jean Hudson, KUAM News Sunday, August 14, 2005 E-mail this article Printable version KUAM Toolbar Web Widgets Get RSS headlines

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Amidst increasing debt and seemingly decreasing options, some consumers and even businesses having to turn to bankruptcy. Changes have been made to the bankruptcy law that also affects Guam. After eight years and several failed attempts, the credit card industry has finally got the bankruptcy law reform changes they've been lobbying for.

President George W. Bush signed the new law this past April, which takes effect October 17.

Deciding to file for bankruptcy can be a painful decision, however, it is a choice that sometimes must be made. Bankruptcy allows individuals or businesses, referred to as debtors, who owe others, more commonly referred to as creditors, more money than they're able to pay to either work out a plan to repay the money over time or completely eliminate, in other words to discharge most of the bills.

George Butler is an attorney whose general practice includes an emphasis on bankruptcy. He told KUAM News, "The number of bankruptcies over the last three years are going down and that's a reflection in the improvement in the economy. And also the fact that we hit bottom; the very worst was about four years ago, people have either moved or they've simply already filed or they lost their homes and it's not possible to salvage them any longer."

Butler says the bankruptcy law reform will affect Guam, saying what he feels is the underlying principal behind most of the changes, one of which extended the filing from six to eight years. He explained, "The concerns of the credit card industry and banks is that there was an increase in the number of bankruptcies filed and that they felt that there were people who can afford to pay at least some of the debt back that were being discharged of the entire debt. So they changed the law to make it more difficult to file and more difficult to get a complete discharge."

One of the changes to the law prohibits some people from filing for Chapter 7 bankruptcy altogether those whose incomes are above the state median income and who can pay as little as $100 per month to creditors. Whether or not a debtor can afford to pay $100 or more a month would be determined not by the person's actual income and expenses, but by the internal revenue service or IRS rules that state what reasonable expenses are. Butler says it is defined in the statute how to determine the median family income. If the debtor has more than the median family income for their district, in this case Guam then they cannot get a Chapter 7 discharge.

Said Butler, "That'll probably only affect only 15% of people who file. Most people who file are below. The median income level and the allowed expenses that will adjust that income are now standards set in the bankruptcy code. It use to be left up to the judgments of the court and now it's going to be set. They're going to use the IRS and the Department of Commerce standards as to what are allowable expenses and how you determine the family income for that particular debtor."

Butler says some debtors may benefit from the new law, because the expenses that are allowed by the Internal Revenue Service can actually be larger than the actual expenses that the debtor has, so they can elect to use the allowed IRS expenses rather than using their actual expenses. "The other is that income under the current law includes social security benefits. Under the new it does not include social security. So if somebody is on social security it might be wiser for them to wait (to file after October 17), because they might fall below the median family income when the social security benefits are deducted. So the standards, when they're applied have a different impact on everyone. Some people benefit by filing before hand and some people better off to wait until after," he said.

People denied a Chapter 7 bankruptcy either have to file for Chapter 13 bankruptcy and come up with a three-to-five year repayment plan or keep slipping further behind on their debts. The new law also places limits on "automatic stay", referring to rules that immediately halt almost all collection actions and lawsuits against someone who files for bankruptcy. But out with the old and in with the new law that now places limits on the automatic stay.

Among other things, the automatic stay no longer stops or postpones: evictions, actions to withhold, suspend, or restrict a driver's license, a professional or occupational license; lawsuits to establish paternity, child custody, or child support, divorce proceedings, or lawsuits related to domestic violence. Butler says there are interesting changes in the business aspects of bankruptcies as attorneys are increasingly encountering bankruptcies that involve companies that have assets and liabilities in more than one country.

"And there's a whole new brand new section of the bankruptcy code that has been created to handle bankruptcies that are what are called cross-border or multinational bankruptcies, Chapter 15, it never had a part of the bankruptcies code that allows that," he said.

Another interesting change in the law, and never really affected Guam is the family farms under Chapter 12. Butler says family farmers actually have substantially more benefits. He adds it's much easier for them to file. They get more protection. "They are allowed to discharge tax liabilities at levels that they've never been previously been allowed to because taxes are very important. When you sell a farm there's usually capitol gains on it and it's interfered with the ability to sell. Those aren't going to have any direct impact on Guam but they might," he said.

The new law also requires most people to get credit counseling from a non-profit agency before filing for bankruptcy. In addition, debtors have to complete a course on personal financial management before completing either Chapter 7 or Chapter 13 bankruptcy.